The Australian Bureau of Statistics estimates the average full time adult earns about $73,000 a year. That’s not a lot, and many earn much less: income statistics tend to be skewed up by a relatively small number of (much) higher income earners. Lots of people can earn more than $73,000 above than the average, but no one can earn more than $73,000 below it.
We do not know any GPs who only earn $73,000 for a full working week. Registrars start on more than this, and with overtime often ears twice this much in their first year. Averages are deceptive, and exceptions occur, but a realistic range of average incomes for Australian GPs looks like this:
|Metropolitan GP, non- owner||$A220,000||$A180,000 to $A360,000|
|Metropolitan GP, owner||$A275,000||$A220,000 to $A500,000|
|Rural GP, non-owner||$A300,000||$A270,000 to $A450,000|
|Rural GP, owner||$A400,000||$A350,000 to $A700,000|
|Cardiologist||$A450,000||$A400,000 to $A600,000|
|Dermatologist||$A400,000||$A400,000 to $A600,000|
|Psychiatrists||$A350,000||$A300,000 to $A500,000|
|Paediatricians||$A300,000||$A250,000 to $A400,000|
|Ophthalmologist||$A400,000||$A350,000 to $A700,000|
|Anaesthetist||$A400,000||$A350,000 to $A700,000|
|Surgeon||$A400,000||$A300,000 to $A700,000|
|Obstetrician||$A400,000||$A300,000 to $A700,000|
|(Based on a fifty plus hour week)|
These incomes are competitive internationally: Australian doctors including GPs are amongst the highest paid in the world. These figures are also competitive with other professions: medicine is the highest paid occupation in Australia.
To give context, 2014 research from Melbourne University says only 1% of the population report taxable incomes of more than $211,000 a year, and those in the top 1% average $400,000 a year.
In summary, almost all GPs are in the top 1% of income earners. Medicine is the highest paid occupational group in Australia, with virtually every doctor working a normal week easily in the top 1% of the income population.
Given how hard you worked to qualify, this should come as good news!
The medical profession is flexible. It accommodates all choices. GPs can typically control the number of hours worked each week and there is no minimum or maximum hours, or sessions (a session typically running for between three and four hours depending on the practice).
Height. GPs have high incomes, much higher than almost all other occupations. The average 40-year-old GP makes $200,000 to $300,000 a year. This is 3-4 times the national average of about $70,000 for a 50-year-old male and up to ten times the average for a 50 year-old female.
Stability. GPs do not face unemployment. There is a shortage and most GPs can choose their working hours and conditions in a way non-doctors only dream about. This is not to say GPs have it easy: general practice is stressful and grueling. But most GPs can control their hours and are not compelled to work by the fear of never working again.
Scalability. Most GPs can increase their incomes whenever they want to. Most have found the patient rate and weekly time commitment that best suits them. But one or both can often be increased on demand. For example, a GP facing a short term cash flow strain can arrange to work Saturdays, and increase income by as much as $2,000 a week, or more than $100,000 a year. Or see an extra half a patient per hour, for ten hours a day, to increase daily income by says $250, or $1,250 a week, or more than $60,000 a year. GP incomes are very scalable.
Length. Most men are retired by age 58 and most women are retired by age 50, even though they do not want to be. Age discrimination and youth bias do not apply to GPs. GPs routinely keep working productively and happily into their sixties and seventies, probably cutting the hours back a bit, but only to the extent that suits them. This means the GP’s income has a greater longevity then most, perhaps as much as an extra fifteen or even twenty years on average.
Throughout this book we will repeatedly stress how the height, stability, scalability and longevity of the GP’s income creates great financial planning opportunities for GPs at all stages of their careers.
The GP’s working life should be paced and spaced to enhance their prospects of working enjoyably into their seventies, maximising economic potential and contribution to society, while making sure there is plenty of time and opportunity for things other than work.
Balance is the thing that is needed. A medical career is a marathon, not a sprint. And the course is a hilly one, at that. Medicine is hard yakka. Balance is needed to maintain your own wellbeing.
Balance is is achieved by control. That is why wealth is so important: wealth confers control. It is much easier to pace yourself if you do not have to sprint just to get by. Accumulating further wealth away from your practice allows for balance.
It just takes time.
Financial planning and GPs
Most financial planning books start out with a predictable list of ‘do’s and ‘don’ts. There is nothing wrong with these lists; they make good sense and, coupled with their wholesome and happy examples, even make good reading. In fact we recommend you read them: most contain at least one gem that can make a real difference to your financial fortunes.
For example, Paul Clitheroe in his classic book “Making Money” (Penguin 2011) provides “ten steps to financial security”. They are:
- Have a plan
- Budget and take control of your money
- Save little and save often
- Avoid punting and silly risks
- Don’t plan to save cash
- Plan to own your own home debt-free
- Super is good – invest in it
- Minimise tax
- Protect your assets
- Take advice if you need it
These are excellent rules, and they echo through this book, adjusted to the circumstances of GPs. If GPs follow these rules there is every chance they will end up wealthy. We basically say the same thing: take advice on setting a long term plan to invest regularly in safe growth assets, minimising tax and maximising superannuation and other asset protective strategies.
That said, the classical authors do often make one substantial mistake. They seriously overstate the case for investing via managed funds. This is a theme we will return to later in this book, but for now let us simply quote Clancy Yeates from the Sydney Morning Herald of May 20 2013:
Here’s something many fund managers would prefer wasn’t discussed: most of them are probably failing to create long-term value.
Despite the billions the industry soaks up every year, statistics show that after fees, most funds underperform over the long term.
Take the latest figures from Mercer comparing big funds’ returns with the ASX 200. Before fees, the typical fund has posted returns of 7.4 per cent in the three years to March, which is a tad better than the index returns of 7.2 per cent.
But this advantage is wiped out once annual fees – which are typically between 1 per cent and 2.5 per cent of assets under management – are taken into account. It’s a similar story for returns over the last year, while over five years pre-fee returns from the typical fund are ahead of the index by a fairly skinny 1.2 per cent a year.
This is why we recommend GPs stay in control of their investments and avoid managed funds (and the institutional financial ‘planners’ who promote them). GPs should invest directly in property, shares and index funds to minimise costs, avoid conflicts of interest, minimise risks and achieve higher net returns.
The rules are:
- Never trust anyone with your money.
- Anyone who is dogmatic is probably a salesperson.
- The best investment is your practice.
- The next best investment is your home.
Following these four rules may mean you miss out on one or two good investments. But you will also miss out on many more bad investments, and on balance you will do much better. The math is in your favor.
Let’s look at each of these four rules in turn.
Trusting others with your money is a precursor to misfortune. If you trust someone often enough your trust will eventually be betrayed. Financial institutions are no exceptions.
Even those who are household names will not protect you. For example, recently CBA clients have suffered at the hands of rogue advisers who threw out the rule-book and rampaged through their clients’ funds, all the while being feted internally and even promoted by the CBA because they were bringing the money in. This matter escalated to a Senate Enquiry and there were even calls for Royal Commission.
The CBA formally apologised to the 400,000 customers in July 2014 but refused to end “sales targets’ for its ‘advisory’ staff. Think about that: if a person has a ‘sales target’ how could they be ‘an adviser?’ Sales people have sales targets. Advisers have happy clients.
Don’t expect the watchdog to protect you: it took nearly three years for ASIC to start investigating the CBA. It took a Senate Enquiry and the threat of a Royal Commission for any real results to be achieved.
It’s not just the CBA. Most of the big financial institutions have been subject to enforceable undertakings from ASIC. These mostly relate to churning, ie recommending product switches from an option that pays the institution less to one that pays the institution more. These ‘switches’ were not in the clients’ best interests. They were in the institution’s best interests.
This is dishonest. Unfortunately, ASIC simply does not have the resources to stamp out dishonesty in the funds industry. But individuals can avoid it themselves. The simplest way to avoid dishonesty is to not create situations where it can occur. You do this by staying in control of your own money: not trusting anyone with money is a basic principle of successful investing.
This does not mean a GP should not use advisers. Some of the best investors use advisers and use them well. They understand we all need coaching sometimes, and one person cannot know everything. But successful investors do not allow the coach to play for them. Successful investors make decisions themselves, stay in control and eliminate unnecessary middle-men.
Many commentators thought we would see the end of conflicted advice when the new Future of Financial Advice (“FOFA”) rules were announced. These rules started on 1 July 2013 with a ‘best interests’ rule and a rule against conflicted remuneration. Many of the original announcements have now been watered down, and although most commissions are banned, ‘commission-like’ payments abound, still.
In early 2014 the new Liberal government announced further changes to allow unqualified bank officers to be paid commissions on products provided they do not provide “personal advice,” that is, do not consider the personal circumstances of the client. It’s hard to see any logic other than a free kick to the banks at the expense of consumer protection.
So, just as you should avoid giving over control of your money, so you should avoid any ‘adviser’ who thinks that there is only one way to make money from investing.
One can often see a GP buy a practice, or part of a practice, for less than $100,000, and almost immediately earn $100,000 or even more extra cash every year. This is the best rate of return they will ever earn. And it is safe and secure, and likely to last as long as they do.
This is the key to creating wealth: derive spare cash that can then be systematically invested in other investments like your home, other property and shares. Own these assets in ‘safe havens,’ such as super funds, trusts and companies to protect them from professional and commercial risks.
The most profitable practices are those that are, or are close to being, portfolio investments. Portfolio investment is where the owner is not actively engaged in the practice, apart from overseeing it via several key performance indicators, a structured reporting program and regular site visits (if the GP is not working from that site himself or herself).
In particular, the successful owner GP is happy for most patients to be seen by other GPs and instead focuses on providing quality services to those GPs.
That said, few practices become true hands off investments. Medical life is not like that. Successful owner GPs delegate as many functions as possible to colleagues, the practice manager and other staff. But few stop seeing paying patients altogether. They love what they do and can’t imagine doing anything else.
Successful practices are successful for a reason: it’s almost always the people involved.
So, great economics combined with enhanced lifestyle means that a quality family home should be a priority for every doctor.
Unsurprisingly, about 80% of financial plans are therefore a waste of time and money. They only deal with managed funds and insurance products. They do not deal with the really important assets, ie the practice, the home, other property, direct shares and so on. They rarely deal with real financial strategies based on long term coordinated plans to maximise financial outcomes and happiness amongst the wider family and across the generations.
To be blunt, they just flog second-rate managed funds to GPs.
Most GPs are surprised to hear most financial planners are actually not allowed to recommend investments other than managed funds. Why? Simple: they do not generate income for the institutional owner. That is why you never see a financial plan prepared by an institutional financial adviser that discusses the GP’s income, their practice, their property, direct shares, investment property, etc. The institution does not sell them, so the adviser does not recommend them.
Even worse, these financial plans also ignore things like asset protection. The risk of patient litigation should not be overstated. But nor should it be ignored.
Most financial plans also under-estimate the income security of a doctor. Conventional financial planning theory says that a person aged 55 is due to retire soon and therefore should be moving to a more conservative investment profile. This is a problem for all people, as many people can expect to live at least another thirty years once they reach the age of 55. How would your current finances (or those of your parents) look if all of your assets today were still valued in 1987 prices?
But it is a particular problem for a doctor, who can look forward to another ten or fifteen years of above average income, even if they begin to cut their hours back and work part time over that period. Indeed, there may be more work than ever for these doctors. With a high proportion of GPs over the age of 55, the Health Work Force initiative estimated that Australia will face a massive shortage of doctors by 2025 when a large number of GPs are set to retire. ‘Forced retirement’ on anything other than medical grounds is simply not going to happen.
- Be based on individual circumstances including age, income, wealth, health, marital status, number of dependants, preferred work life balance, career ambitions, risk return preferences, financial goals and overall personality.
- Reflect the high stable and long income stream faced by most GPs at all ages;
- Be written by a financial planner, not a para-planner, with a range of experiences and expertise suited to the task. The writer should be familiar with the GP’s particular circumstances. The plan should not be written by a computer, should be personal and should address the GP’s individual needs.
- Be based on a data collection process pitched to GPs, and allow for subjective assessment of responses, with further questions from the adviser to discover what drives the GP and where their financial aspirations lie: it may not be about making more money. It may be about making more time, living better or longer.
- Consider residential property, both as a home and an investment,
- For practice owners, consider ways to develop that practice, including things like engaging more GPs, engaging allied health professionals, improving efficiency, increasing prices, controlling costs, and growing patient numbers.
- Consider direct shares (or index funds as a close proxy).
- Include sound tax planning developed specifically for GPs so that after-tax income is maximised, allowing a maximum amount of cash for investment.
- Include sound asset protection strategies, such as family trusts and self-managed super funds, as vehicles for holding wealth.
- Address at least ten years, and preferably twenty years, and ideally include the next generation, while still detailing what needs to be done now.
- Be specific, particularly for the earlier years. The plan needs to say who, what and when so everyone knows what they have to do and why they are doing it.
Having said all of that, the best plan in the world will not create wealth unless the GP has the conviction and the discipline to start it, follow it and finish it. Successful investing is a long-term process involving decades and even generations, not mere years, let alone quarters or months. This (very) long-term perspective must be kept in mind at all times and is the key to really understanding investment theory.
What is the point of being wealthy? If you are to become wealthy, you have to understand why you want to be wealthy. There are many reasons for accumulating wealth. Most GPs will become wealthy by operating efficient practices: the market rewards good medicine and good patient outcomes. The practice income is first re-invested in the practice and then, once the practice is at optimal efficiency, invested in more passive investments, ideally the home, and then other property, direct shares and index funds owned in SMSFs, companies and trusts.
GPs are good investors, but they need independent advice and objective information. All GPs should:
- work with an adviser who is not controlled by a financial institution, who provides objective advice and can act in the GP’s best interests;
- maximise their income and tax profiles by developing their practices as businesses;
- consume less than they earn, and invest the excess in a mix of diverse asset classes, skewed to producing non-taxable unrealised capital gains;
- use spouses, family trusts, companies and SMSFS to protect investments and achieve better after tax rates of return;
- invest in a well located good quality home;
- prefer direct investments to indirect investments;
- carefully use debt to maximise after-tax growth;
- emphasis cash flow positive investments to increase net cash flow and decrease risk;
- stay in control of their wealth at all times; and
- avoid investing in anything that pays anyone a commission or something that looks like a commission, such as asset based fees.
 For example, refer to the article in the Sydney Morning Herald by Adele Ferguson and Chris Vedelago dated 18 June 2013 “The bank, the whistleblowers, the regulator and the lost savings”, and numerous similar articles
 The Sydney Morning Herald, “More doctors becoming specialists but a shortage of GPS, AIHW report warns” (24 August 2016) – http://www.smh.com.au/national/health/more-doctors-becoming-specialists-but-a-shortage-of-gps-aihw-report-warns-20160824-gqzwxf.html